Protecting Contractual Rights and Project Stability Under Saudi Law
Regional conflicts continue to affect construction and infrastructure projects across Saudi Arabia. Delays in shipping, rising freight costs, insurance concerns and disruption to procurement chains are placing increasing pressure on contractors, suppliers and project owners.
For many businesses, these challenges are already affecting project timelines, delivery obligations and overall commercial performance on active projects across the Kingdom.
In the current environment, companies should not focus only on operational responses. It is equally important to carefully assess their legal and contractual position under Saudi law.
Understanding the Difference Between Force Majeure and Hardship
One of the key legal issues under Civil Transactions Law is the distinction between situations where contractual performance becomes impossible and situations where performance remains possible but becomes extremely difficult or financially burdensome. This distinction is important because the legal consequences may differ significantly depending on the circumstances.
Where performance becomes genuinely impossible due to events outside a party’s control, relief may be available through suspension, termination or discharge of certain obligations. This situation could arise, for example, where essential materials cannot legally be imported or where access necessary to perform the work becomes unavailable.
However, many of the current market disruptions do not make performance impossible. Instead, they increase costs, delay procurement and place considerable pressure on project execution. In such situations, the issue may fall closer to hardship or exceptional circumstances rather than force majeure.
Exceptional circumstances that render performance excessively difficult may in certain cases, require renegotiation or judicial adjustment of contractual obligations.
Disruption Alone Does Not Automatically Excuse Delay
The existence of regional disruption does not automatically release a contractor or supplier from its contractual obligations. Saudi courts and arbitral tribunals will generally examine the actual impact of the disruption, whether the event directly caused the delay, whether alternative solutions were available, whether mitigation efforts were properly undertaken and whether contractual notice procedures were followed correctly.
As a result, two parties facing similar market conditions may still achieve different legal outcomes depending on how they managed and documented the situation. Proper evidence and timely action are therefore often critical.
Why Contractors and Suppliers Face Increased Pressure
Many construction contracts in Saudi Arabia place substantial risk on contractors, particularly under fixed-price EPC and infrastructure arrangements. Contractors are frequently responsible for procurement, delivery schedules, subcontractor management, supply chain performance and completion obligations.
At the same time, some contracts contain narrow force majeure provisions and may expressly exclude compensation for price escalation, increased freight charges, fuel costs or broader market fluctuations.
This may leave contractors exposed to project delays, liquidated damages, increased operational costs and commercial pressure from both employers and subcontractors. Where subcontract terms are not aligned with the main contract, disputes may quickly arise across different levels of the project structure.
Government Projects Require Strict Procedural Compliance
For public sector and government-related projects, procedural compliance is particularly important. Under the Government Tenders and Procurement Law, contractors are generally expected to issue notices within contractual timelines, provide supporting evidence, demonstrate the cause of delay, maintain records of mitigation efforts and carefully follow administrative claim procedures.
Even where disruption is genuine, failure to comply with contractual or procedural requirements may weaken a claim. For this reason, early legal and contractual assessment is often important before positions become contentious.
Common Issues Emerging Across the Market
Several recurring issues are currently emerging in construction and infrastructure projects across Saudi Arabia. These include delayed equipment deliveries, procurement shortages, increased logistics and shipping costs, variation disputes, project suspension risks, programme delays and exposure to liquidated damages.
In large infrastructure and concession-based projects, these issues may also affect financing arrangements, operational timelines, investor obligations and long-term commercial planning.
Documentation and Evidence Are Essential
In practice, successful claims are usually supported by clear documentation rather than general references to market conditions. Important records may include supplier correspondence, shipping and customs records, revised project schedules, meeting minutes, mitigation records, cost tracking documents and formal contractual notices.
It is also important to distinguish between delay related claims and cost related claims. A party may be entitled to additional time without necessarily being entitled to recover additional costs. Careful legal and factual analysis is therefore important before claims are advanced.
Early Commercial Discussions Can Prevent Disputes
Not every disruption needs to result in formal proceedings. In many situations, projects can be stabilised through early commercial engagement and practical adjustments between the parties. Revised milestones, alternative sourcing arrangements, negotiated variations and temporary commercial accommodations may often preserve both project continuity and contractual relationships.
A recent matter illustrates how a structured legal and commercial response changed a situation moving toward termination into a revised and workable arrangement. We advised a contractor operating at a Saudi port under a long-term contract heavily dependent on diesel consumption across cranes and transport fleets. The contract was entered into for a four-year term commencing in 2024. During performance, diesel prices increased materially over successive years, rising from approximately SAR 1.15 per litre in 2024, to SAR 1.66 per litre in 2025, and further to approximately SAR 1.79 per litre in 2026, resulting in significant operational cost pressure and disrupting the original commercial assumptions on which the contract pricing had been based. Although the contract excluded recovery of fuel-related cost increases under the force majeure provisions, reliance was placed on Article 97 of the Civil Transactions Law relating to exceptional circumstances and contractual imbalance.
The position advanced was that while performance remained possible, the exceptional increase in costs had rendered the contractual obligations excessively onerous. Structured negotiations were initiated alongside preparation for possible court proceedings seeking contractual rebalancing. This approach changed the commercial dynamic, following which the parties agreed a revised arrangement involving adjustment of the contract economics through a differential cost mechanism. The matter demonstrates that, in appropriate cases, Saudi law may still provide avenues for renegotiation and rebalancing even where contracts attempt to limit recovery for increased operational costs.
Practical Steps Businesses Should Consider
Parties affected by ongoing disruption should carefully review force majeure and hardship provisions, assess notice requirements, analyse delay and variation mechanisms, preserve evidence and correspondence, document mitigation efforts and track cost impacts separately from delay impacts.
At the same time, businesses should maintain commercial discussions while protecting their legal rights and contractual position. Taking early and organised action can significantly improve both commercial and legal outcomes.
Closing Remarks
Regional disruption continues to place pressure on many infrastructure projects across Saudi Arabia. However, legal outcomes will depend not only on the disruption itself, but also on preparation, documentation and contractual strategy.
Businesses that act early, preserve evidence and engage constructively are generally in a stronger position to protect both project continuity and contractual rights.
We regularly advise contractors, suppliers, EPC companies and project stakeholders across Saudi Arabia on contractual risk, delay management, force majeure, renegotiation and dispute resolution matters under Saudi law.
How can NKL support
We assist contractors, suppliers, EPC companies and project stakeholders across Saudi Arabia in reviewing affected contracts, assessing force majeure and hardship positions, preparing contractual notices, advising on delay and variation claims, and supporting commercial negotiations to help preserve project continuity and contractual rights.
Where disputes arise, we also advise and represent clients in settlement discussions, arbitration and court proceedings under Saudi law.
